Silicon Valley Bank’s Failure Threatens California Winemakers
California’s wine industry is facing a potential short-term cash crunch and long-term loss of funding from the collapse of Silicon Valley Bank, which was a significant lender to vineyards and winemakers.
Hundreds of wine producers borrowed from the bank and deposited their cash there, including some small, midsize and privately held businesses that are trying to make payroll or loan payments.
“It could be devastating,” said
John Balletto,
president of family-owned vineyard and winery Balletto Vineyards in Santa Rosa, Calif. His deposits with Silicon Valley Bank are small and insured but he knows other wine businesses in the area that have uninsured deposits and could come under pressure. “People are in shock,” he added.
Mr. Balletto, who produces mostly Pinot Noir and Chardonnay grapes on about 850 acres in Sonoma County’s Russian River Valley, has three mortgage loans with the bank. It would be a major concern if they had to be restructured at higher interest rates depending on what happens with the bank, he said.
The Federal Deposit Insurance Corp. said Friday it has taken control of Silicon Valley Bank via a new entity. Depositors under the bank’s $250,000 insurance cap are expected to have access to their funds as of Monday. Depositors with funds exceeding insurance caps will have to wait to get their money. Many companies are now racing to line up other sources of cash.
The bank’s swift failure was driven by clients withdrawing cash, which forced the bank to raise cash by selling long-term government bonds at a loss. Worries about the bank’s ability to raise additional funding prompted companies to withdraw their money quickly, accelerating the bank’s demise.
The wine industry is a relatively small part of the bank’s business compared with the technology and healthcare industries. But SVB rode the growth of California’s wine business since the 1990s, benefiting from booming demand and soaring land prices. More recently, winemakers faced turmoil from the pandemic, higher labor costs and losses from wildfires and drought.
“They’re upset and anxious,” said
Rob McMillan,
founder and executive vice president of the bank’s wine business. “Everybody is afraid of the unknown.” He has received about 50 calls from clients and others in the industry during the past few days.
The division has about 400 wine clients and lent more than $4 billion to the industry over the past 30 years. It had more than $1 billion in loans outstanding to the sector at the end of 2022.
Rob McMillan, founder of SVB’s wine business, says his clients are anxious.
Photo:
Cayce Clifford for The Wall Street Journal
The bank’s annual State of the Wine Industry report is read widely in the industry. Mr. McMillan has agreed to stay with the FDIC-controlled firm for 45 days and is fielding offers from other banks. He took a substantial financial loss from the stock’s collapse in recent days.
Wine producers are highly dependent on lenders and investors to carry them through the yearslong process of growing, harvesting, producing and aging wine. Right now, vineyards are pruning vines—removing old canes and cutting others to encourage new growth—in anticipation of the new growing season.
Smaller producers will likely be hit hardest by the bank’s failure. Industry giants such as
Constellation Brands Inc.
and E. & J. Gallo Winery have access to more sources of funding.
Some in the industry are most worried about the ripple effects of losing a lender with decades of experience valuing wine inventory and assets and lending against them.
Jasmine Hirsch,
general manager at family-run Hirsch Vineyards in Sonoma County, only has small, insured deposits with SVB but is worried about a loan agreement she reached with the bank about 18 months ago.
She had planned to tap the loan to start developing 10 acres later this year and isn’t sure what will happen if she has to pursue a new loan at a higher interest rate. Others in the industry tied to SVB might also be forced to delay or cancel investments and expansion plans.
“This is the last thing we all needed,” Ms. Hirsch said.
Write to Amrith Ramkumar at [email protected]
Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8
California’s wine industry is facing a potential short-term cash crunch and long-term loss of funding from the collapse of Silicon Valley Bank, which was a significant lender to vineyards and winemakers.
Hundreds of wine producers borrowed from the bank and deposited their cash there, including some small, midsize and privately held businesses that are trying to make payroll or loan payments.
“It could be devastating,” said
John Balletto,
president of family-owned vineyard and winery Balletto Vineyards in Santa Rosa, Calif. His deposits with Silicon Valley Bank are small and insured but he knows other wine businesses in the area that have uninsured deposits and could come under pressure. “People are in shock,” he added.
Mr. Balletto, who produces mostly Pinot Noir and Chardonnay grapes on about 850 acres in Sonoma County’s Russian River Valley, has three mortgage loans with the bank. It would be a major concern if they had to be restructured at higher interest rates depending on what happens with the bank, he said.
The Federal Deposit Insurance Corp. said Friday it has taken control of Silicon Valley Bank via a new entity. Depositors under the bank’s $250,000 insurance cap are expected to have access to their funds as of Monday. Depositors with funds exceeding insurance caps will have to wait to get their money. Many companies are now racing to line up other sources of cash.
The bank’s swift failure was driven by clients withdrawing cash, which forced the bank to raise cash by selling long-term government bonds at a loss. Worries about the bank’s ability to raise additional funding prompted companies to withdraw their money quickly, accelerating the bank’s demise.
The wine industry is a relatively small part of the bank’s business compared with the technology and healthcare industries. But SVB rode the growth of California’s wine business since the 1990s, benefiting from booming demand and soaring land prices. More recently, winemakers faced turmoil from the pandemic, higher labor costs and losses from wildfires and drought.
“They’re upset and anxious,” said
Rob McMillan,
founder and executive vice president of the bank’s wine business. “Everybody is afraid of the unknown.” He has received about 50 calls from clients and others in the industry during the past few days.
The division has about 400 wine clients and lent more than $4 billion to the industry over the past 30 years. It had more than $1 billion in loans outstanding to the sector at the end of 2022.
Rob McMillan, founder of SVB’s wine business, says his clients are anxious.
Photo:
Cayce Clifford for The Wall Street Journal
The bank’s annual State of the Wine Industry report is read widely in the industry. Mr. McMillan has agreed to stay with the FDIC-controlled firm for 45 days and is fielding offers from other banks. He took a substantial financial loss from the stock’s collapse in recent days.
Wine producers are highly dependent on lenders and investors to carry them through the yearslong process of growing, harvesting, producing and aging wine. Right now, vineyards are pruning vines—removing old canes and cutting others to encourage new growth—in anticipation of the new growing season.
Smaller producers will likely be hit hardest by the bank’s failure. Industry giants such as
Constellation Brands Inc.
and E. & J. Gallo Winery have access to more sources of funding.
Some in the industry are most worried about the ripple effects of losing a lender with decades of experience valuing wine inventory and assets and lending against them.
Jasmine Hirsch,
general manager at family-run Hirsch Vineyards in Sonoma County, only has small, insured deposits with SVB but is worried about a loan agreement she reached with the bank about 18 months ago.
She had planned to tap the loan to start developing 10 acres later this year and isn’t sure what will happen if she has to pursue a new loan at a higher interest rate. Others in the industry tied to SVB might also be forced to delay or cancel investments and expansion plans.
“This is the last thing we all needed,” Ms. Hirsch said.
Write to Amrith Ramkumar at [email protected]
Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8
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